Those of us who have read the book or watched the film Gone With the Wind would remember that after the end of the Civil War in the US, there was a group of Northerners who went to the south to pillage the territory and to exploit the defeated Southerners.
These Northerners were referred to as carpetbaggers, the word being coined from hand carried bags made of carpet weave cloth and produced by the northern mills.
The carpetbaggers would either loot abandoned houses or would buy things cheaply to sell them very expensively to the defeated Southerners, whose economy had been destroyed by the civil war.
What is the link of the carpetbaggers with the world of business today? We have already experienced the speculators at work through their short selling strategies, causing havoc in the international financial markets, causing small savers to lose big amounts of money and causing the bankruptcy of a number of companies.
Governments are still uncertain about the measures they are to take to avoid a recurrence of the 2008 events. For example, there is fear that the much awaited report on the UK banking system risks being put on the shelf for a number of years, as the UK government spears to be afraid of taking any steps that might be used as an excuse by financial institutions to relocate their activities elsewhere.
In the meantime, speculators have been at it again and again putting stock markets, individual companies, as well as governments with high fiscal deficits and corresponding high financing costs, under pressure. The credit rating agencies have not been of much help and at times have been judged to have provided willing or unwilling support to the activities of the speculators.
It is evident that throughout the financial crisis and the resultant economic recession, we have had our own 21st century version of the carpetbaggers. One also senses this because a number of companies that have experienced significant drops in their share value are reporting very positive results in contrast with the messages coming from the financial markets.
As if this were not enough, we are now starting to experience another phenomenon in the international financial markets. It is not such a new phenomenon, but it is expected to become more pronounced in the coming months and possibly years.
Some unscrupulous investors are sensing blood and are mounting takeover bids in companies which they hope to buy for a pittance, probably breaking corporate governance rules. The small existing shareholders in such companies are not getting a fair value for their shares, while the unscrupulous investors eventually sell their shares for a handsome profit. A typical carpetbagger act.
Where is the link with Malta in all this? Over the last 20 years or so the Maltese have been encouraged to look for forms of saving that are an alternative to savings accounts. As such, the Maltese have invested in local and foreign equities and government bonds and have invested in collective investment schemes. They have learnt how to trust a system that was alien to them prior to 1990. These forms of investment, very often representing a person’s life savings, represent miniscule proportions of a Sicav’s value or a company’s value.
This makes them very vulnerable to predatory strategies of the latter day carpetbaggers. Their only line of defence lies in the advice given to them by local financial intermediaries, who are in turn regulated by the Malta Financial Services Authority.
This problem is not going away any time soon and so it would be foolish to think that we shall be immune to it. We need to take action as a country to help avoid the fallout of the actions of the carpetbaggers in the international financial markets.